Reflate the economy

In my quiet moments, I had spared some thoughts on what should advisedly be the thrust of fiscal policy as we await the full take-off of President Buhari’s administration to complement monetary policy in view of the existential challenges that currently confront the nation and I have come to the conclusion that we should go for a policy that would attempt to deliberately reflate the economy and risk an increase in price levels as we do so. It would also imply that monetary policy should be similarly deliberately targeted at growing the economy as it is currently the case. Therefore, what we are hereby recommending is an expansionary fiscal policy that would be targeted at achieving rapid economic growth which would result in the creation of employment opportunities to get the idle and under-employed population of the country back to work, boost purchasing power and hopefully catalyze a massive enough momentum which ultimately would allow us to spend our way out of the inflationary pressure that is bound to result.

As we make this recommendation, we would like to recall the sentiments recently expressed by the president in a paper he presented during his recent visit to America at a forum at the United States Institute for Peace (USIP). In the paper titled “We have no illusions about our challenges”, the president declared: “As we ramp up our efforts to defeat Boko Haram, we know that winning this battle sustainably will require that we expand economic opportunities and create jobs for our teeming young population.” But whenever I have attempted discussing this idea with some friends, I have confronted sceptical minds, particularly when I cite the US example. I have been told that we do not have the diversified economic base to replicate the American feat in this regard, and some have even questioned where the funding is going to come from. The government could, of course, borrow and nation-states in such predicaments have other known and recognized sources for finding such monies!

We have the example of Barack Obama to instruct us in this respect and it might be necessary to declare upfront that one is not naïve to think that this example is going to be easy to replicate and copy. When President Obama assumed office in 2008 the American economy was in similar dire straits. It would be recalled that that was when the bubble burst on the sub-prime mortgage market resulting in widespread loan defaults followed with massive job losses; mortgage firms went bankrupt and the budget deficit ballooned. Some of us empathized and worried that this once-in-a-lifetime opportunity of a black man occupying the White House was going to be marred by such unsavoury developments in the economy almost guaranteeing that he would be a one-term president, but the rest, as we often say, is now history. It is on record that with this development in America, the rest of the world literally went into recession but President Obama doggedly stuck to what he now characterizes as ‘middleclass economics’, proceeded to adopt expansionary fiscal policy and bailed out companies that were moribund, particularly car manufacturing companies, in the process saving potential massive job losses. He expanded the security net resulting at some point in time to a lockdown. It was feared that the American economy was going to experience a shutdown as Congress refused to countenance further expansion of the deficit.

Well, the fact that Obama more or less did not encounter any opposition in his quest for the renewal of his tenure is positive proof, if any was ever needed, that his administration has been a roaring success which allows him to walk with assured recognizable swagger. The only blot which most blacks see is his recent fond passion for the defence of prochoice and same-sex marriage (union) and his inexplicable unrestrained celebration of the American Supreme Court decision to approve same-sex union in the whole of America, coupled with the ill-advised attempt to force this aberration on other countries particularly in sub-Saharan Africa.

Also, as we make this recommendation for expansionary fiscal/monetary policy, it would appear that we are at one with the Lagos Chamber of Commerce and Industry (LCCI). But where we pointedly disagree is the LCCI’s rapid and unrestrained opposition of the Central Bank of Nigeria decision to delist some 41 items from access to official foreign exchange funding. The LCCI argues that such a step is constraining the economic space and might result in some company closures as some of the excluded items are intermediate products for some of its membership. But I shared a discussion platform with Muda Yusuf, the LCCI director-general, on an NTA “Good Morning Nigeria” programme when a manufacturer of tomato puree regaled us with how, following the announcement of this policy, his operations suddenly gained traction resulting in his having to recall 1,000 workers he had previously laid off because of lack of demand; the manufacturer was therefore full of effusive praise for the president and the CBN governor for this laudable policy. And the explanation which the CBN authorities gave in justification of this measure is that in addition to the fact that reserves are dwindling and therefore there was no option but to attempt some demand management, the extant free-for-all regime only resulted in the exportation of badly needed jobs.

We are aware that LCCI had engaged with the CBN to share perspectives on this matter and despite this development the LCCI would want to blackmail the CBN to toe its recommended line of action of policy reversal, even if the organization is alone – amongst the other organized bodies such as Manufacturers’ Association of Nigeria and the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) – in championing this course of action.
In practical terms, attempting to reflate the economy would result in allowing the budget deficit to go beyond the current target of 3 percent of GDP specified as a limit in the Fiscal Responsibility Act, even if this thrust would necessitate a review of the law in this regard. For the sake of comparison, it is on record that in Ghana the deficit this year is at the level of 7.3 percent of GDP, up from an initial estimate of 6.5 percent, as Ghanaians attempt to deliberately stimulate the growth of their economy. It is a matter for the record that the deficit in budget 2015 is of the order of 1.4 percent of Nigeria’s rebased GDP. Reflating the economy would also entail that we deliberately avoid any measures that would result in the layoff of workers.

And, therefore, as we undertake all manner of restructuring including the rationalization of ministries, departments and agencies, it is recommended that we do so with a mind of avoiding throwing more people into the job market and such a mindset should inform the decisions we take with regard to the existence of some special purpose vehicles such as SURE-P, etc. It would also require that we aggressively attempt to expand the tax net to capture particularly those who are currently not paying any tax and also make the rich amongst us to contribute a bit more through the levying of luxury tax, as was commenced during the immediate past regime, to continue to bridge the yawning inequality gap in the country. To put the extent of work that is required to be done in this respect in context, available data regarding the volume of tax revenue to GDP indicated that it is 7.8 percent for Nigeria while for France, UK, US and Tanzania, it is 45, 39, 27 and 12 percent, respectively. Therefore, it is obvious that we have some catching-up to do in this respect and it is reassuring to note that some progress had been made recently by aggressively mobilizing tariff revenue to boost non-oil income.

We might not have any option but to in due course bite the bullet of terminating the subsidy regime. As at the last count, the subsidy amount of about N1 trillion a year trumps the budget provision for capital expenditure for 2015 and is most certainly not sustainable. The fact surrounding the Nigerian situation regarding the subsidy regime is that it is hallmarked with all manner of sleaze including unearned payments. This observation inevitably begs the question regarding who are the beneficiaries of this misallocation of resources. Studies have shown that only about 8 percent of the subsidy payments reach the poorest 20 percent of the population. In fact, the deregulation of the downstream petroleum sector is an idea whose time is here as it is neither possible nor realistic to expect to attract private capital for the construction of refineries under a regulated regime. And we must find the resolve to pay focused attention to many other sectors of the economy which even have the potential of making far greater contribution to the economy than oil (such as the gas sector) but had been the subject of gross neglect.